tv Nightly Business Report PBS October 24, 2011 6:30pm-7:00pm PDT
middle-class families, and it's a drag on our economy. when a home loses its value, a family loses a big chunk of their wealth. >> susie: fresh steps to boost the economy, as president obama rolls out new help for struggling homeowners. and a bad day and a bad quarter for netflix. customers leave netflix in droves and the stock plunges almost 30% in after hours trading. it's "nightly business report" for monday, october 24. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible
by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. my colleague tom hudson is on assignment. help is on the way for struggling homeowners. the white house rolled out an expanded plan to help americans refinance underwater mortgages. it's doesn't need a stamp of approval or a vote from lawmakers in washington. president obama announced the new program in las vegas today, and he's betting it'll a be a big win for homeowners and the economy. sylvia hall has details. >> there are still millions of americans who have worked hard and acted responsibly, paying their mortgage payments on time. but now that their homes are worth less than they owe on their mortgage, they can't get refinancing.
>> reporter: the president is expanding his efforts to boost the nation's troubled housing market. so far, the home affordable refinancing plan, known as harp, has helped less than a million people refinance underwater mortgages. analysts say many homeowners couldn't qualify for the refis because of a cap. >> say you have a 250,000 mortgage at a 6% rate, but the value of your home has fallen below $200,000. right now, you can't refinance. you're ineligible. that's about to change. >> reporter: the cap has now been eliminated, effectively opening the program to anyone current on their loan payments. the administration has extended the plan through 2013 and will also eliminate risk-based fees. but, economist richard dekaser thinks the impact will be minimal. >> that will help those individuals reduce their probability of defaulting, and hence, help prevent more properties coming onto the market, contributing to the glut and driving down prices. all of that will follow from this. however, i need to emphasize that the magnitudes are quite
small. the administration isn't making estimates on how much harp will help housing. dekaser says outside factors, like interest rates, will determine how many people are helped and by how much. >> if mortgage rates go up, the incentive to refinance greatly goes down, and the effects of this program would be diminished. should mortgage rates decline, however, there will be far greater opportunity to take advantage of a program like this, create an incentive to do so. >> reporter: president obama plans more rollouts in the coming weeks of programs designed to boost the economy. the next one, a plan to help creat jobs for veterans, is scheduled to be announced wednesday sylvia hall, "nightly business report," washington. >> susie: we all know the u.s. housing rket is stuck in the basement, but st how bad is it? suzanne pratt reports. >> reporter: from adorable bungalows in sunny south florida to mediterranean mcmansions in new jersey, the u.s. housing
market is still a mess. sure, there are pockets of strength, but on average home prices are down 30% since the 2006 peak. that's on par with the drop homeowners experienced during the great depression. the worry is that prices will fall even more. economists say that's as the market bears the heavy burden of steady foreclosures. >> the biggest problem in the u.s. housing market is this oversupply in aggregate across the country. and, not enough household formation, not enough job growth, allowing this younger generation to come in and buy the homes in inventory. >> reporter: beyond current inventory, some guess there's another four to six million home loans that could end up delinquent or in foreclosure. and, then there's the quarter of mortgage borrowers underwater on their loans because of the home- price plunge. economist greg heym says on top of all that, people's attitude toward home ownership has shifted. >> they've stopped looking at it as an a.t.m. or something that's going to rise sharply every
year. it's not something to bet on. it's a home, you should buy a place that you want to live in, and not be so obsessed with its value at any given moment in time. >> reporter: of course, there are a few positives suggesting the market will one day build a new foundation. first, developers have pulled way back. so much so that new homes are on pace for the worst year since the government began keeping records 50 years ago. and, don't forget mortgage rates. the 30-year fixed is hovering around 4%, the lowest level in 60 years. on top of that, there are some amazing deals out there and housing affordability is extremely attractive. the good news is that we've seen home prices come down pretty significantly, and you're at a point now where home prices are actually cheaper than rents. but, others say the nation's housing market will not turn around until confidence
picks up in a big way and that cannot happen with an unemployment rate still close to 9%. suzanne pratt, "nightly business report," new york. >> susie: still ahead, when the housing boom went bust many half-finished housing developments were left for dead. now some are seeing a new and unexpected rebirth. more talking and more negotiating on how to solve europe's debt crisis. european leaders spent another weekend trying to work out a deal on a bailout fund for troubled countries. german lawmakers said the fund-- the "european financial stability fund"-- will be increased to $1.4 trillion. that means more firepower to protect countries like italy and spain from being engulfed in the debt crisis. the region's banks will also be asked to boost capital levels by a collective $139 billion. full details are expected wednesday, when european leaders gather for a second summit.
on wall street, hopes europe can fix its financial mess combined with powerful earnings from heavy equipment maker caterpillar and a host of deals to give stocks a boost. the dow rose 104 points, the nasdaq added almost 62 and the s&p 500 was up 16. trading volume starting the week lighter, with 925 million shares moving here at the big board and two billion on the nasdaq. the plot thickens in the netflix saga. its stock plunges almost 30% in after-hours trading despite a late today, the company reproted a huge loss in subscribers. netflix earned $1.16 a share, well above estimates, while revenues were up 49% to almost $822 million, also above estimates.
joining us now to talk more about those netflix results? eric bleeker. he's the senior tech analyst at motley fool. hi, eric. >> hey. >> susie: you tomd me that the quarter would be the most important in netflix's history. it certainly is going to be one we'll be talking about for a while. what did you make of those numbers they reported today? >> it's ugly out there. i don't knows what's more red right now, the million envelopes they send or reed hastings face because there is blowback from the pr snafus, several of which across the summer. and you look at they had just update guidance a few weeks ago and subscriber numbers came in even further below that. what really spooked investors, this is a growth business and priced like a growth business and to have even streaming subscribers coming in probably lower next quarter, subscribers are falling off a cliff, that is part of a broader
strategy from the company but still i think management says it's going to be bad next month. november is going to kind of stabilize. and in december they'll see growth again but is anyone trusting management when numbers keep coming in below their expectations, even a few weeks later, and they haven't been able to read consumer's minds well at all recently. that's the scary thing. >> susie: let me jump in. i know you have a lot to say but let me jump in with other questions here. what did management say on the conference call. i know you were listening in, that call with ansys-- analysts, did they say anything to give a sense that they do have a growth plan? >> well, the growth plan, they are very much-- there is a lot of defensive questions right now getting thrown at management because they have by their own admission made mistakes. they are sticking to it which is go international. even though it's going to cause them to lose money for several quarters, they are gaeing to the united kingdom
and ireland the first quarter. look at canada, they have already got 10% households there. successful-- they are still going to only get 30 million from those markets probably next quarter and lose 70 million. so this isn't any kind of short term payoff. they're sticking to their guns but it's going to cause some extreme short term pain for the company. >> was there anything positive in this report, anything that investors could sort of look to the future and feel hopeful about, did anything stand out to you? >> on the positive note, the costs that they are spending to get subscribers is still pretty low. and you know the thing that you have to remember is it is a growth story but even with lowsing subscribers this quarter, they are still up 100% over the last year in terms of subscribers. you look at the stock chart, it looks like a banking stock in 2008 t is all downhill. >> let's take a look at the
banking, at the stock chart. here is a stock that was trading at 300 just a few months ago this was the darling on wall street, down 30% today. what do you make of a stock plunging 30% in after-hours trading? >> well, it just shows exactly that it is growth stock and when they don't hit expectations, people flee and they've been fleeing for a long time. but it has come down to the point, hey, when it was at 300, netflix had to redefine the media. that was what was in front of them to justify that share price. now that they are all the way down to 85, 90, they really just kind of need to dominate their streaming niche to be able to justify their valuation. this is still a fundamentally very good brand that even with subscriber kind of going away, it is still large as their major competitor. and if they continue, they are on every single dvd player, every video game system, it's well
entrenched. so as long as they are not having any major snafus they are priced at a good price relative to the strength of the brand. >> susie: we have to leave it there. any foreclose-- do you own this stock, dow own netflix. >> i don't but it is recommended by motley fool. >> susie: it is still recommended even after this big drop, interesting. all right. thanks a lot. >> long-term investors. >> susie: nice talking with you. we have been speaking with eric bleaker senior tech analyst at the motley fools
>> susie: the october rally continued on wall street today thanks to merger news and lots of earnings. let's take a look in tonight's "market focus." cigna will buy healthspring for about $3.8 billion in cash in a bid to add medicare and senior care coverage. under the terms of the deal, cigna will pay $55 a share, 37% above healthspring's closing price on friday. healthspring shares spiked nearly 34%. cigna shares only saw a 1% gain. in another merger, oracle struck a deal to buy "right now technologies" for around $1.5 billion. that's a nearly 20% premium from friday's trading for the cloud- based customer service company. shares of right now technologies were up nearly 20%. oracle saw a 2% gain.
in other tech news? texas instruments. after the close, it reported a 30% drop in profit. texas instruments earned 51 cents a share, six cents less than wall street expected. revenue fell 7% from a year ago, but was ahead of its forecast range. shares of texas instruments, rose 4% today to close at $31.69. they fell slightly in after hours. amgen reported after the close as well. at $1.40, the drug maker beat the street by eleven cents. those results excluded a $780 million charge to settle a government investigation into sales and marketing practices. in the regular session, amgen shares closed up slightly at $58.95. in after hours they were basically unchanged. the driver behind the wheel of today's trading was caterpillar. the world's largest maker of construction and mining equipment earned $1.71 a share, 17 cents more than analysts expected. revenue surged 31% to nearly $16 billion as demand for its
machinery came from cross the globe. in asia, sales rose 27% faster than other regions emerging from the recession. cat shares rose 5% today, closing at $91.77. upbeat manufacturing data out of china boosted crude oil and copper prices. oil prices were up 4.5% while copper rose 7.5%. the industrial metal has been on a tear since last week as optimism spread a eurozone solution was on the horizon. that was welcoming news for freeport-mcmoran, the world's largest publicly traded copper producer. the stock was also mentioned as potential takeover target in the latest issue of barron's. tonight, f-c-x shares are also sitting at a one-month high of nearly $40. there was a soft patch in trading: consumer staples, led by kimberly clark. at $1.26 per share, its earnings were in line with estimates.
the company cut its sales outlook as it continues to see weak demand for baby products in developed markets. shares of k-m-b closed down 4.5% to $69.65. kimberly clark weighed on other consumer staples. colgate palmolive, clorox and procter & gamble were all down at least 1%. we'll see quarterly results from colgate and p&g later this week. and that's tonight's "market focus." some interesting market trends during this earnings season. investors are super-picky when it comes to tech earnings. let's find out more in tonight's "word on the street." joining us now? jill malandrino, reporter at thestreet.com. hy, jill.
>> hi, susie, thanks for having me. >> susie: you spotted a trend in what happens to high growth, high-tech companies when they are reporting their earnings. tell us a little bit more about what you are seeing. >> i think with the market overall this is certainly not 2008-2009 where investors are complacent with companies making the quarter on cost cutting alone. they are incredibly picky and they have the right to be. so they are look for companies that are beating with 3w09 on line revenue and not simply cost cuts. so what we are seeing happening in high beta tech is these names are being bid up so high into the print and they come crashing down in the after-hours and they open up lower for the day. and they usually end up closing down for the following trading day as well. so for example-- . >> susie: well, let's take some examples. you have given three stocks to look at. let's begin with apple. here is the case that we remember that the stock was really rising in the days before its earnings release which was last tuesday, october 18th.
earnings and revenues came in lower than expected because of not as much high phone sales. the stock tumbled so what is your take away. what is your analysis of what happened here. >> what happened with apple was it was bid up 15% five days into the print. so they beat their own estimates of eps and guidance but it wasn't enough for the street. iphone sales came in softer, ipod sales came in softer, regardless of the fact that the ipad sales beat by 156%. that is a big number it terms of revenue but investers aren't good enough with beating management guidance. they want consensus to really beat and strong guidance going forward. i think what will happen with apple especially with the new c.e.o., the next quarter or two will be showing me quarters and the charts are going to have to fall in line with the fundamentals. >> susie: let's skip ahead to amazon. they are going to be reporting tomorrow. we are expecting some good numbers but you don't know. the stock as you see on this chart has been rising.
it was up today, up last week. so what are your predictions for what happens tomorrow? >> i think it follows the same pattern that it did like ibm did as well. this thing is bid up way into the print. even with a $12 tumble it took last wednesday i think valuations is incredibly rich and what investors are going to look for when the company reports is how fire sales are guided. what is the company saying. they better be really strong if consensus has to be happy with that or else the market is going to take this stock down. >> all right, got to go. thanks so much. any disclosures. do you own either amazon or apple. >> i do not. >> okay, great, nice having you on the program. >> thank you. >> we've been speaking with jill malandrino of the street.kovment back now to the housing picture. the real estate industry calls them "broken developments" or "red-field" sites. some homeowners call them "eyesores." they're housing developments that went bust, leaving a few homes surrounded by acres of weeds. more of these sites will be going on the auction block next year as banks try clear them off
of their books. as diane eastabrook reports, some are finding their way from eyesores to success stories. >> reporter: these are the sights and sounds of new home construction. school street, near downtown libertyville, illinois, is an aberration in an anemic housing market. buyers have snatched up 21 of the development's 26 homes and a third of the 15 lofts housed inside a former grade school. >> so, here's the master suite. this is a great room because it has this awesome window seat here. >> reporter: developer john mclinden shows off one of the few bungalows still on the market. school street was a huge gamble for mclinden. he bought the project in a foreclosure sale last year after the previous developer went bust. instead of continuing school street as a development of million-dollar townhomes, mclinden scaled it back to smaller, less expensive bungalows. >> the style of a single-family
bungalow connected to downtown was very appealing and we had early-- very positive early response. in fact, we sold six of the homes before we closed. with hard contracts and 20% down. >> this was a subdivision where there were over 450 home sites. >> reporter: rick levin auctions off foreclosed properties, including abandoned developments like school street. he says these so-called broken developments or redfield sites can be a tough sell if a potential buyer envisions a different project than the one a community originally approved. >> if the municipality is entrepreneurial and they can give you an answer rather quickly, it's wonderful-- or you can get an indication that this is the largest development in that community, and as long as you're a reputable buyer, they're going to work with you to hopefully change or tweak the product mix in the subdivision. >> reporter: the school street bungalows cost between $350,000 and a half-million dollars-- roughly half the price of the original townhomes.
that means skimpier property tax revenues for libertyville. but, mayor terry weppler says it's a sacrifice the village is willing to make. >> you're not going to have property tax revenues if it's not built. that type of housing, again, that was originally starting to be built there? there wasn't a market for that anymore. >> reporter: mclinden thinks the school street concept could be used in other redfield sites. in fact, he says he's been contacted by other communities who would like to use it as a model in their abandoned subdivisions. diane eastabrook, "nightly business report," libertyville, illinois. >> susie: here's what we're watching for tomorrow: earnings keep rolling in. we'll hear from 3m, delta airlines, u.p.s., u.s. steel and xerox. we'll also get the latest consumer confidence numbers along with the case shiller home price index for august. tomorrow, we continue our look at how to fix the economy with david cote, c.e.o. of honeywell.
a big recall for harley davidson. it wants to fix a switch problem on over 300,000 motorcycles. harley's worried the brake lights, and possibly even the rear brakes themselves, could fail. the models are involved in the recall, the touring, c.v.o. touring and trike vehicles from the 2009 to 2012 model years. so far, there's been just one crash reported from the issue. fedex is hiring 20,000 seasonal workers as it gears up for a busy holiday season. the shipping giant says it will handle 260 million packages between thanksgiving and christmas. that's a 12% jump over last year. and fedex thinks the busiest day for holiday shipping will be december 12, when it expects to move over 17 million packages-- almost double its normal load.
and finally tonight, its expected to be a big seller this holiday season, and no its not an iphone-- but close. it's about the man who created the iphone. amazon.com today predicted the new biography of apple c.e.o. steve jobs will be its top seller for all of 2011. the biography, "steve jobs," by walter isaacson, hit stores
today and it's already the best seller on amazon and on its kindle e-book store. with the books techie subject, the e-book version is expected to outsell the old-fashioned hardcover for the first six months. that's "nightly business report" for monday, october 24. i'm susie gharib. good night everyone, and we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt captioned by media access group at wgbh